Risk of China’s economy overheating as inflation surges

| May 11, 2010 | 0 Comments
Risk of China’s economy overheating as inflation surges

Chinese inflation continued to increase last month on the back of rising house and food prices.

According to China’s statistics bureau, consumer prices in April were up 2.8% on an annualised basis - the highest rate in 18 months, while house price inflation hit 12.8% - fuelled by new luxury housing in Shanghai.

While the figure is still below the Government’s own inflation target of 3% for the year, they have raised concerns that China’s economy is overheating and pressure will mount on the country’s central bank to hike interest rates and loosen currency controls.

Last month, it was revealed that China’s economy, which is the world’s third largest, expanded at an annualised rate of 11.9% in the first three months of the year.

However, despite the strong growth, economists have cautioned that the economy is expanding too quickly.

Many economists believe higher interest rates and a moderate appreciation in the currency would help the economy avoid inflationary pressures.

Over recent weeks, China has been under pressure from the US to allow the Chinese currency to find its own level in order to ease inflation.

China, however, has told US President Barack Obama that it is committed to yuan reform but will not be pressurised into making changes to its currency peg.

Keeping the yuan stable is “an important contribution” to global recovery said China in March.

In the meantime, figures show China’s industrial output grew 17.8% year-on-year in April, while retail sales grew 18.5% to 1.15 trillion yuan.

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